Rent capitalisation method governs valuation of leased property for capital gains, displacing an alternative revenue approach.

For computing capital gains on transfer of a leased immovable property, the fair market value was required to reflect the transferor's restricted interest and the actual rent receivable from tenants. The rent capitalisation method was held to be the appropriate basis for valuing such tenanted property, and a valuation adopted on a different approach was not justified. The Assessing Officer was directed to recompute the capital gains accordingly, with the matter restored for valuation on the correct method.

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Issues: Whether, for computing capital gains on transfer of a leased immovable property, the fair market value had to be determined by adopting the rent capitalization method on the actual rent receivable from the tenants, and whether the valuation made on a different basis could be sustained.

Analysis: The property transferred was a leasehold property with the lease continuing for a long period, and the assessee was entitled only to the rent actually receivable from the tenants. The valuation of such a tenanted property had to reflect the restricted interest available to the transferor, and the rent capitalization method was the appropriate method for that purpose. The valuation adopted by the departmental authority on the basis of a different approach was therefore not justified. The reasoning was supported by judicial precedents recognising that, where property is let out, valuation should be based on the rental return actually available to the owner.

Conclusion: The valuation could not be sustained on the basis adopted by the revenue authorities, and the Assessing Officer was required to recompute the capital gains by applying the rent capitalization method.

Final Conclusion: The assessee succeeded on the substantive valuation issue, and the matter was restored for recomputation in accordance with the proper method of valuation.

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